Guide to Bitcoin for Beginners
This quick guide is for people who don’t want to get into the technical details but still want to know what bitcoin is, how to get it and how it can be helpful. It tells you how the system works, how to use it to make money, and when you should be careful. There are links to resources that can help you keep and use digital currency.
What exactly is Bitcoin?
Bitcoin came out in 2008, right after the Occupy Wall Street movement said that big banks were taking advantage of borrowers’ money, lying to customers, messing with the financial system, and charging very high fees. The people who came up with bitcoin wanted to make sellers responsible for transactions, eliminate intermediaries, get rid of interest rates, and complete transactions public to stop corruption and keep fees low. They made a system where no one person is in charge, and everyone can control their own money and know what is going on. In a short amount of time, bitcoin has become very popular.
Bitcoin is on websites on the internet, and there are news stories about it in specialized media. For years, large online forums have been talking about cryptocurrencies and giving out their coins. The system has its API, price index, and exchange rate. There are, of course, also problems, such as hackers, high volatility, and transaction delays. But in some countries in the third world, bitcoins can be the most reliable way to send or receive money.
What’s the point of Bitcoin?
In simple terms, “bitcoin” refers to either a digital currency or the technology that makes it work. You can use the currency to pay for things, transfer money, or trade it for cash. For transactions, a particular address with a 16-character key. The buyer figures out the code to send bitcoins to the address given. In other words, cryptocurrency is a way to buy and sell goods and services over the internet. A peer-to-peer computer network, like Skype or BitTorrent, is used to check the transaction.
1. Irreversibility. After confirmation, you cannot cancel the transaction under no circumstances. No one can interfere in the process — neither you, your bank, the president, Satoshi Nakamoto, nor your miner. Nobody. If you send money, you send it. No one will help you if you give your money to a scammer or if a hacker steals it from your computer.
2. Anonymity. Neither transaction account is associated with any real-world entities. You receive bitcoins to a so-called address, which is a random string of about 30 characters. As a rule, it is possible to trace the flow of transactions, but the address does not necessarily have to do with the user’s real identity.
3. Speed and global reach. Information about the transaction is distributed on the network instantly and in a few minutes. Since the whole process takes place on a worldwide computer network, your physical location does not matter. Whether you send bitcoin to your neighbor or someone on another continent is no different.
4. Security. The Bitcoin balance is in a cryptographic system with a public key. The only person who can send cryptocurrency to another address is the private key owner. This plan is almost impossible to hack because of cryptography and the magic of large numbers.
5. Deregulation. To use cryptocurrency, you don’t have to ask anyone for permission. It’s just software that is available to everyone. By installing it, you can receive and send Bitcoins or other cryptocurrencies.
Where to buy Bitcoins?
You can get your first bitcoins on any of these platforms.
1. Bitcoin exchange, where you can exchange “ordinary” money for bitcoins. Resources: Coinbase and LocalBitcoins in the USA and Canada, as well as Binance and Bittylicious in the UK.
2. Cryptocurrency exchange, where you can exchange bitcoins or cash for another cryptocurrency. Resources: BTER and CoinCorner.
3. An intermediary website directly connects you with sellers who want to exchange bitcoins for money.
4. Sites where you can trade your goods or services for bitcoins. Resources: Purse and similar sites.
Attention! Scammers are active in the bitcoin market, so before using the service, review the reviews or ask questions on the thematic forum.
How does Bitcoin work?
Without going into the specifics, we can say that bitcoin is on an extensive public database called “blockchain.” All transactions that have been in what is called “Blocks.” When a block to the system, it is checked and then added to a P2P network. So, each user knows about every transaction to help stop theft and double spending, which is when someone does the same marketing twice. This step makes sure that users have faith in the system.
How to store Bitcoins?
Let’s say Alice wants to buy bitcoins. To begin with, she needs to have a particular “wallet” where she will place her cryptocurrency.
Alice can use three different types of applications.
1. Full customer. is a program similar to a standalone mail server that handles all processes without relying on third-party servers. Alice will have to control all her transactions from start to finish. This option is not for beginners.
2. Lightweight customer. It looks like an offline mail client that connects to a mail server to download messages. Such a client can store Alice’s bitcoins, but he needs a third-party server to access the network and make a transaction.
3. Web client. It is the complete opposite of a full client: such a client resembles an email since it ultimately depends on a third-party server. A third party manages all Alice’s transactions on her behalf.
Desktop, mobile, and browser wallets are the most common; in addition, a wallet can exist “on paper” and in the form of special equipment. Each type of wallet has its advantages and disadvantages.
How to buy or sell something for Bitcoins?
One of the main features of bitcoin is that it has no physical embodiment. All you have are transaction records between different addresses in the blockchain system. Let’s go back to Alice to see how this process works.
Example of a Bitcoin transaction
Alice wants to use bitcoins to order pizza from David. She sends him her private “key,” a sequence of letters and numbers in which the data of her transaction, the amount, and the public address of David’s digital wallet. David scans the “key” with his smartphone to decode it. At the same time, Alice’s transaction to all other network participants (the so-called “nodes”), after about ten minutes, is confirmed through specific technical processes known as “mining.” This process allows the Wife to understand whether Alice’s transaction should be authorized.
What is mining?
Mining, or mining, is a process that ensures the security of the bitcoin system by chronologically adding new transactions (or blocks) to the blockchain. When the codes, the transaction, and bitcoins are transferred or exchanged. In addition, miners can generate new bitcoins using special software to solve cryptographic problems, provides a reasonable way to issue currency, and also motivates users to engage in mining. How to mine Bitcoins:
All network participants agree upon the reward for a new block, but it usually amounts to 12.5 bitcoins. In addition, part of the miner’s profit of fees to users who make transactions. To prevent inflation and maintain control over the system, by 2040, should be no more than 21 million bitcoins in circulation, so the cryptographic tasks used in mining are becoming increasingly complex.
How to protect your Bitcoins?
As is the case with a standard wallet, store only a small amount of bitcoins on a computer, mobile phone, or in a client for everyday use: it is better to keep other funds at a separate, more secure address, for example, in an offline wallet disconnected from the network. Regularly create a backup copy of your wallet. Use a strong password to protect your wallet or smartphone from thieves. Update your software. For additional protection, use the multiple signature feature, which allows the transaction only after several independent confirmations.
What else do you need to know?
Protect your address. Although it is difficult to associate a bitcoin address with your real identity, Bitcoin remains the most open form of transaction: all participants in the network see your balance, and the transaction log is one of the reasons why you should change public addresses after each transaction. You can also use several wallets for different purposes so that your total balance and transaction history do not become the property of those who send money to one of them—the number of confirmations. As already mentioned, it must receive a certain number of warranties from the network to complete the transaction. The number of guarantees distinguishes them from different wallets and trades of other volumes.
The government requires the payment of taxes on income, sales, wages, and capital gains; this may also apply to bitcoin transactions. Different countries have different laws about bitcoin, and some still don’t let people use it. In the United States, each state has its own rules. In 2016, the only state whose legislation regulated the use of bitcoins was New York.
What are the disadvantages of bitcoin?
Hackers and scammers thrive in the bitcoin system. At least one attack happens every week, and they are getting smarter. Many people don’t use bitcoin because its software is hard to understand, volatile, and transactions take a long time. At least ten minutes will pass before your network lets the transaction go through. Some Reddit users complain that they have to wait for confirmation for more than an hour.
What to be afraid of
Scammers can lure bitcoin users into financial pyramids, pretend to be miners, wallet services, and exchanges.
Pyramids: A fraudster asks to transfer money to his wallet, promising to pay an unusually high percentage — up to 1-2% per day. Stay away from companies that directly provide a wallet address for incoming payments rather than using conventional exchanges such as BitPay or Coinbase.
Miners: You will know that a massive amount of bitcoins can be “mined” for you for a fee. Of course, you won’t see any money or bitcoins anymore.
Exchanges: You will be offered features not available in typical bitcoin wallets, such as PayPal payment processing or a more favorable exchange rate. Needless to say, after receiving the card details, scammers will pull money from your accounts.
Wallets: Scammers’ wallets are similar to ordinary online wallets – with one difference: you will not have your address but a ready-made one from which your money will flow to scammers.
What are the advantages of bitcoin?
The best thing about bitcoin is its decentralization means that you can make international transactions without suffering from the difference in exchange rates and without paying additional fees. Bitcoin is free from interference and manipulation; no central bank can raise interest rates at its discretion. The system is transparent, so you know what’s going on with your money. You can start accepting Bitcoins instantly; you don’t need to spend money and energy on opening a trading account or buying equipment. Bitcoins cannot, and your client cannot demand a refund.